Don’t Start an Airbnb Arbitrage business before watching this
Summary
TLDRIn this video, Sean Rock, an experienced Airbnb operator with 150 properties, shares insights on subletting without owning property. He emphasizes the importance of obtaining a landlord's permission, often through a lease addendum that modifies the original agreement. Rock provides tips on negotiation, securing favorable terms, and choosing the right properties and landlords. He also discusses the benefits of rental arbitrage, especially during a recession, and invites viewers to join his Facebook group for further advice and community support.
Takeaways
- 😀 You can operate an Airbnb without owning the property through subletting, provided you have the landlord's permission.
- 🏘️ Sean Rock has been managing 150 Airbnb properties for 7 years without owning any, making millions in the process.
- 📝 A lease agreement or addendum can be used to secure permission from the landlord to operate an Airbnb business.
- 📑 A lease addendum is a one or two-page document that modifies the lease, and if it contradicts the lease, it takes precedence.
- 🤝 Negotiation skills are crucial when dealing with landlords to get the best terms for your Airbnb operation.
- 💰 Never agree to pay more than market rent or share profits with the landlord; these terms can negatively impact the business model.
- 🛡️ It's beneficial to negotiate for minimal or no security deposit, and consider using a security deposit bond for better cash flow.
- 🆓 Seek to negotiate free rent periods or rent discounts as part of the lease agreement to increase profitability.
- 📈 Rental arbitrage can be advantageous, especially during a recession when property prices may decrease, and costs for supplies or labor could be lower.
- 🔍 Choose properties and landlords carefully, ensuring the property is in good repair and the landlord is cooperative and not overly demanding.
- 🌐 Joining a community of hosts, such as a Facebook group, can provide additional insights, support, and diverse opinions on various aspects of hosting.
Q & A
What is the term used for renting a property to list on Airbnb without owning it?
-The term used is 'subletting'.
Is it illegal to list a property on Airbnb without owning it?
-No, it is not illegal, but you need the landlord's permission.
Who is Sean Rock and what is his experience with Airbnb properties?
-Sean Rock is a person with 150 Airbnb properties and has been doing this for 7 years without owning a single one, making millions in the process.
What is a lease addendum and why is it used?
-A lease addendum is a document that modifies the terms of a lease. It is used when landlords are hesitant to change the entire lease, allowing them to agree to specific terms on a separate page.
What does a lease addendum typically include?
-A lease addendum typically includes the parties involved, the address of the property, and the terms of the agreement that modify the original lease.
What is the purpose of the terms in a lease addendum?
-The terms in a lease addendum are meant to outline the relationship modification between the landlord and tenant, and if they contradict the original lease, they overwrite the conflicting terms.
What benefits should one try to negotiate with a landlord for Airbnb subletting?
-Benefits to negotiate include no or a small security deposit, the ability to use a security deposit bond, free rent or rent discounts, and a longer lease term.
What is a Master Lease and when is it typically used?
-A Master Lease is a comprehensive document used for managing large deals involving multiple properties, such as 20-40 doors at a time.
Why is negotiating with a landlord important when setting up an Airbnb property?
-Negotiating is important to present the arrangement as a benefit to the landlord, potentially leading to more favorable terms and a better business relationship.
What are some terms that should not be allowed in a lease addendum according to the script?
-Terms that should not be allowed include sharing profits with the landlord, paying more than market rent, and having the landlord have access to a co-hosting account to see guests.
What is rental arbitrage and how does it compare to buying property for Airbnb?
-Rental arbitrage is the process of renting a property and listing it on Airbnb for profit. It is less capital-intensive than buying property because it requires a smaller upfront investment and can potentially offer higher cash flow with less money out of pocket.
What are some strategies mentioned for negotiating better terms with landlords?
-Strategies include negotiating for no or reduced security deposits, using security deposit bonds, and negotiating for free rent periods or rent discounts.
What are some considerations when choosing properties for Airbnb rental arbitrage?
-Considerations include the state of repair of the property, the landlord's responsiveness to repairs, the potential for value creation through improvements, and the market demand for the type of property.
How does the script suggest starting an Airbnb business during a recession?
-The script suggests that starting during a recession could be advantageous due to potentially lower costs for supplies or labor, and less competition in the market.
What is the role of a Facebook group mentioned in the script?
-The Facebook group serves as a community of hosts who share knowledge, experiences, and advice, providing a platform for new hosts to learn from others in the industry.
Outlines
🏢 Airbnb Subletting and Lease Agreements
Sean Rock, an experienced Airbnb operator, discusses the possibility of operating Airbnb properties without owning them, a practice known as subletting. He emphasizes the importance of obtaining a landlord's permission, which can be formalized through a lease or a lease addendum. The addendum is a one or two-page document that modifies the original lease terms and outlines the relationship between the landlord and tenant, specifically for the operation of a short-term accommodation business. Rock provides insights into what can be included in the addendum, such as the landlord's understanding of the tenant's business and permission to conduct it, and the importance of negotiation to avoid unfavorable terms like profit sharing or higher rent.
🤝 Negotiating Terms and Conditions with Landlords
This paragraph delves into the negotiation process with landlords when setting up Airbnb properties through rental arbitrage. Rock outlines various terms one might want to negotiate for, such as no or a small security deposit, the use of a security deposit bond, and rent discounts or free rent periods. He also mentions the strategy of 'security deposit burnoff,' where the security deposit is gradually returned over time. The importance of selecting the right property and landlord is highlighted, along with the potential issues that can arise with lower-quality properties, such as the need for repairs and the landlord's responsiveness. Rock also touches on the benefits of longer leases for the cash flow and risk profile of the business.
💰 Strategies for Rental Arbitrage and Market Opportunities
In the final paragraph, Rock explores the concept of rental arbitrage in depth, discussing the financial advantages of setting up Airbnb properties through leasing rather than purchasing, especially in a potential market downturn. He suggests that a recession could present an opportunity for starting an Airbnb business due to reduced competition and possibly cheaper costs for supplies and labor. Rock advises on the benefits of negotiating favorable lease terms, such as lower rent and longer lease durations, and the potential for growth in the business by managing multiple properties for a single landlord. He also mentions the possibility of transitioning from rental arbitrage to property ownership as the business scales up, and encourages viewers to join a Facebook group for further advice and community support.
Mindmap
Keywords
💡Airbnb
💡Subletting
💡Lease
💡Lease Addendum
💡Rental Arbitrage
💡Negotiation
💡Security Deposit
💡Free Rent
💡Master Lease
💡Housekeeping
💡Value Creation
Highlights
You can operate an Airbnb without owning the property through subletting with the landlord's permission.
Sean Rock has successfully managed 150 Airbnb properties for 7 years without owning any, making millions.
A lease agreement can include permission for Airbnb operation or use a lease addendum for modifications.
A lease addendum is useful for landlords hesitant to change the entire lease, offering a one-page modification.
The addendum clarifies the relationship and can overwrite contradicting terms in the original lease.
Negotiation is key in securing favorable terms in the lease addendum for Airbnb operation.
Landlords may require specific insurance, higher security deposits, or access to a co-hosting account.
Avoid agreements that require sharing profits or paying more than market rent.
A Master Lease is a comprehensive document for larger deals, provided for free to Sean's students.
Landlords should understand and permit the nature of the short-term accommodation business.
Negotiate for no or a small security deposit, and consider a security deposit bond as an alternative.
A 'security deposit burnoff' can be negotiated to gradually return the deposit over time.
Free rent or discounts can be negotiated as part of the lease agreement.
Longer leases are beneficial for recouping furniture costs and spreading investment over more revenue periods.
Choose properties and landlords carefully to ensure good repair and maintenance practices.
Rental arbitrage can be advantageous in a recession due to potential opportunities in the market.
Starting an Airbnb business during a recession can provide a competitive edge with less market competition.
Sean Rock offers a free Facebook group for hosts to exchange knowledge and experiences.
Transcripts
yes you can Airbnb without owning any
property but you knew that already
everybody knows that it's called
subletting but it's not illegal you just
need the landlord's permission there's a
lot to this conversation but we're going
to make this pretty short my name is
Sean Rock I have 150 airb properties
been doing this like 7 years never
owning a single one of them made
Millions it's been fun you can do this
too let's go Welcome Back YouTube world
so yes uh this is my area of expertise
so just fast facts you can have a
property that you don't own you can sign
a lease for it the landlord can and will
give you permission if you present
yourself the right way you can either
write that into the lease your
permission just Hardline it into the
lease or you can use something called
the leas adendum and now the leasa denm
is probably something we should talk
about so subscribe for more of course
just at least give me a subscribe that's
all I'm asking for now what's in the Le
and denim could be really interesting
there's some basic stuff and there's
some big stuff that you can add in it's
basically what you think you can get
away with the premise of Alisa Den it
outlines a relationship modification
that could go in the lease but we use a
Lisa denim because sometimes landlords
are too too scared to change the lease
in its entirety in a lease of denim it's
easier for them to read like one page
and go okay this is cool I'll sign that
but it modifies the whole lease in a way
what a leasa denim would say is that
this one page of terms if it contradicts
with the lease then the page of terms
overwrites anything in the lease that it
contradicts does it make sense the lease
and denim will outline the parties it'll
say you are the tenant the landlord's
the landlord it'll mention the address
it'll just reference the address usually
called premise or property and then
it'll say this onepage document or
two-page document uh is purposed to
outline the terms of an agreement
between the landlord and tenant you know
while at least is active at premise and
then we start putting the stuff in the
Lisa Denim and we're going to talk about
what goes in there now there's things
that you need to put in the Lisa Denim
and there's things that you're going to
want to put in the lisad denim now I
have a Lisa denim for my cracking
superos students but you can really just
use this video in combination with a
video I already shared years ago guys
I'm going to put a link to that in the
description and just click on the link
here if you want that one also I have
something called a Master Lease it's a
big fat document cost me thousands and
thousands of dollars to get to make to
pay to have made now that is a document
I also provide for free to my cracking
superos students and it's rarely ever
used it's only used for like my absolute
biggest deals you know how I'll do 20 30
or 40 doors at one time so Master relase
is helpful for that if you want that
thousands of dollars document you'd have
to join that but you don't need it yet
if you're still you know playing a small
game so you're good there landlord
understands that the nature of the
tenants business is to provide this
location or premise as an accommodation
for very length of stays including
shortterm stays as applicable by local
regulations landlord shall allow the
tenant to conduct all matters of
business required in order to profitably
run their short- terminal accommodation
business landlord understands what you
do they understand what your business is
and they're giving you permission to
conduct your business activities now
there's going to be stuff that you're
going to want in there and there's going
to be some stuff that landlords want in
there and this is where negotiation
becomes super important another video
that's normally in cracking superos but
I also have it for free here on on
YouTube is my video how to negotiate go
watch that video because if you've never
done sales before you've never
negotiated for before you come to a
table with a landlord to try to get
permission to Airbnb their property
you're going to want to learn to
negotiate because you want to pitch this
as a benefit to them because if you can
get them to really like this idea
they'll give you more cool stuff and
they'll ask for Less stuff in return if
you don't do a good job negotiating the
landlord might require you in this
addendum they might modify it that
you'll have to have a certain type of
insurance policy that you're going to
have a higher security deposit the
landlord will have access to a
co-hosting account where they can see
the guests that you're taking in the
landlord can make you responsible for
repairs stuff like that now there's
things that you should never allow a
landlord to add in like you're not going
to share your profits with them or
Revenue you're not going to pay more
than Market rent you'll never going to
do that now a lot of you might go well
what if I need to to get my first deal
you shouldn't because the reason why is
the nature of this type of business
model getting a landlord to rent you
their property and you put it on the
market you're taking a spread out of the
market you're not going to make more
money because you you paid more rent
you're still going to collect the same
amount of cash so paying more rent
automatically makes the deal worse it
just does in addition a landlord who's
asking you to pay more rent or you know
asking you to share your profits he is
now in the mindset that he is doing you
a favor and he wants some topside off of
your deal and that is not how we pitch
our business model now I have a very
strict sales system that I teach my
students one of the premises of the
sales system as we make our approach is
really to align this as a benefit for
the landlord we're looking for landlords
who are willing to see this as a benefit
to them cuz they need a red check too
right and if we can make this seem
Mutual they're not going to have this
high on their Force kind of approach
where they're dogmatic they're all up in
our business they're trying to raise our
rent all the time they're being douches
we can have good business with good
landlords and everybody is happy you do
not want a landlord who thinks that he's
getting one off on you right you do not
want a landlord who thinks he can charge
you more money you will not like that
business relationship things that you
would like to negotiate for some of
these might be hard to digest but yes
you can do these is either no security
deposit or a flat small security deposit
like $300 per door the ability to use a
security deposit Bond instead of an
actual security deposit which is like a
non-refundable Bond you pay 10 or 15% of
its value and it's held for the landlord
still at a smaller rate like maybe
$1,000 Max so you're paying $150 for a
security deposit Bond but you never get
that $150 back because hopefully you
never move out of the unit anyway it's
not going to matter you you just don't
want to lock up money into security
deposit it's bad for your cash flow so
you want to negotiate a different type
of security deposit agreement for places
that have made us pay like full month
security deposits we've done what's
called a security deposit burnoff where
after a half a year and then a year and
then a year and a half we slowly get
that security deposit back so we've done
burn-offs before that's a cool Pro tip
you also want to negotiate free rent or
discounts on rent or both and yes you
can do that we'll get 8% off market rate
we'll also get eight or 10 weeks of rent
for free my last deal in Houston we got
nine weeks of rent for free the deal
that I was just working on in Austin
where we painted all those walls I got
10 weeks of rent for free there it is
just honestly a part of the negotiation
and if we sell the deal the right way we
can get the free free rent that of
course is a cracking suos thing like I
said um there's some things that will
stay private because if I gave everybody
in the planet my script for free rent
then it takes away my ability to get
free rent I'm sorry there's some things
I just won't give you guys for free
because we can't spit it off into the
whole world I still like my free rent
and I want to keep that but for those of
you with sales experience um it might
start making sense and you might
actually find your own way to a free
rent script eventually otherwise for
those of you without sales experience
like I said cracking super host
surprisingly you want a longer release
than a shorter release this actually is
good for you the reason why is because
you're getting possession of a property
and you're going to buy furniture and if
you're only able to make money on that
property for one year so you return an
investment is weighed against your
furniture costs and then a year of
Revenue but if you can spend the same
amount of money for furniture but then
get two years of Revenue off of that
lease it's much better for you that's
much better for your again your risk
profile the longer lease is actually
good for you further since we're
negotiating with a landlord there's more
at play here that we really want to be
careful for we want to take a look at
the property and we want to get to know
them a little bit because you need to
make sure you pick the right property
and the the right landlord everybody
would love an A-Class high-rise new
build property problem is the rents can
be pretty high on those so you'll have
to do your market research and make sure
that it looks like the market can
support that because the more rent you
pay like I said the less room for a
spread there is you're going to have to
find new ways to create value the
housekeeping Market is pretty high on
cost right now and so I would probably
recommend doing cheaper properties where
you can get slightly longer stays on
average to keep your housekeeping cost
down until you can learn my system for
hiring housekeepers by the hour and yes
this is an another thing that we do we
pay $4 to $17 an hour for our
housekeepers right now a lot of people
don't believe it but imagine if you
owned a housekeeping company that was
charging you to clean your house what is
that housekeeping company paying their
housekeepers the W the hotel right
across the street from me they pay about
$4 or $15 for their housekeepers too
businesses pay hourly all the time and
you can do that if you did more average
properties ones that aren't as
impressive there might be more room for
what you would call Value creation you
take a property that doesn't seem so
good on paper necessarily it doesn't
seem so good as a long-ter rental and
you can do some magical stuff in order
to make that property look way way cool
in the photos and now if it's well
marketed on Airbnb you can keep your
calendar full at a good nightly rate and
you have more room for margin I recently
just did a video where I took very plain
units in Austin the same one where I got
the 10 weeks of rent for free now that
I'm Renning the company again I went
down and I refurnished those you take a
very boring place it's very cheap and
then you can flip that into multiple
different looks I have two separate
green looks one is super masculine and I
love it cuz green is my favorite color
one is this blue and green very neutral
gender neutral but also very vibrant and
fun and then the other one's pink pink
and purple and I actually love this unit
to death it's so playful and it's
probably one of everybody's favorites so
far from what I've been told but I'd
actually like to know what you think in
the comments out of the three which of
these would you stay in which would you
prefer because I'm still looking to
paint a few more another couple of
colors and I could probably use some
direction on that so thank you and with
that said these cheaper properties will
then have things that you need to look
for that landlord may be more of an
absentee landlord that doesn't do
repairs and so when you go and tour
property you want to see what state of
repair is the place in do you trust this
landlord to repair things quickly when
you report them we have a property in
Houston that we are having some issues
where the building is just flooding in
part of it whenever it rains and of
course the landlord's trying to fix the
rain problem but he just doesn't seem to
understand his building enough to know
where the water's coming from they
reflashed the whole building is what I
heard but the next rain came and we
still had a flood so we have these
cheaper properties that look great but
one of our four-month long tenants just
reported that they are having a a flood
issue in the their living room a small
one but it's still there and these are
the kinds of things that could happen
with a b-class property so you do want
to be careful for the properties that
you choose you do want to ask enough
like thorough questions to make sure
that the state of the building is good
and as you have this conversation with
the landlord you can find out if the
landlord's a generally nice person or
not if you have a landlord that has a
lot of ego and kind of combative and
dismissive you're going to find that
your relationship with them isn't going
to be largely positive now the cool
thing about rental Arbitrage especially
right now housing prices might actually
pull back they could legitimately pull
back this next year so to buy a house
doesn't really have an advantage because
you're not going to get appreciation
over the next year now a year from now
if the market pulls back you might find
a cool buying opportunity and then there
would be more advantages to buying but
with rental Arbitrage if you're not
looking to get appreciation from the
property that you own it cost about 1/8
of the price to set up an Airbnb as an
Arbitrage as opposed to buying because
when you buy investment properties you
have to put 20% down put this all
together into one big enchilada if you
find a landlord who's cool who is
willing to do business is willing to
grow with you is trying to buy some
properties that's just all they do if
you can pick up eight times as many
units by doing Arbitrage than buying you
could give that landlord a lot of
business you can give them a lot of
leases so if you get a landlord that you
like and they like you and you're doing
good business as they go buy more
properties and they're spending all the
money to get the appreciation and The
Debt Pay down then you can just pick
those properties up as rentals and
hopefully get a sweetheart rent deal and
you can continue to make a high cash
flow business with very little money out
of pocket you might find that you grow
to a position where you have 20 30 50
doors and you might want to switch to
buying because you just can't grow
anymore there might be a point that you
as a business owner owner just have a
hard time running 50 properties so if
you're going to run 50 Max and you're
already at 50 you might as well switch
to ownership at that point because you
might make more money per property that
way right you make more money per dollar
with Arbitrage and I will say on that
note if you are thinking about doing
rental Arbitrage a recession could be a
cool time to do it chat GPT seems to
think that starting a business in
recession could be a good idea because
there could still be strong demand in
certain sectors but there's less people
getting into business because of the
recession and you might have an
opportunity to get supplies or labor at
a cheaper cost and what's funny is in
previous videos I had to talk about this
right now if you were to start an Airbnb
business whether you bought or do
Arbitrage you could get People's
Furniture on the cheap there's people
exiting the industry right now and as
suppliers leave the industry and guests
stay in the industry there'll be less
suppliers and more money for all the
suppliers and you as a host would be
technically a supplier cuz you're
supplying an apartment chat GPT seems to
agree start your business in a recession
learn to fight while it's tough get good
at this while it's tough that way you
don't have to learn to get good at this
if a recession smacked you in the face
face in the middle of being a business
are I think starting while it's hard is
probably a cool way to do it because
then you have this humble sense of
respect for the industry instead of
thinking it was so easy and then getting
smacked like everybody else is right now
a lot of people who are quitting right
now were good hosts when it was easy
they're not good hosts when it's hard
hunt down some furniture from people who
are looking to sell to get out make them
a payment arrangement you don't even
have to pay full price for the furniture
up front you'll say hey I'll make you
payments over 6 months you find a
landlord to sign a Lisa denim with you
remember watch the video that I did
years ago on the Lisa denim just for
another Breeze through of what all goes
in there cuz it's a legal document it's
pretty much all the same and with that
said I'm not a lawyer guys I'm just
telling you what I use from the lawyers
that I've paid these are the documents
I'm using from lawyers that I've paid
for this stuff so yes I paid thousands
of dollars tens and tens of thousands of
dollars to multiple lawyers as a
business owner it just comes with a
territory so I hope that my expenses and
experience can give you guys an
opportunity at making your first
$100,000 a year seven figures a year I
hope that for you guys I was able to do
it it's a pretty easy industry I think
anybody can if you care enough to grow a
business and stay disciplined you can do
it this is going to be fun and I'm here
to help if you need anything put it in
the comments as always and of course I
have a free Facebook group with about
50,000 hosts that know a lot of stuff
too and we all chat in there so if you
want more of a court of public opinion
approach to a question and you don't
want just my answer alone go into the
free Facebook group the hosts of AR andb
automated to ask your question to a
bunch of hosts you can even get some
answers on What markets are good what
type of furniture is best maybe some
opinions on different softwares that
people are using and other stuff down
there's a lot of stuff to know lots to
learn and you can do it and again thank
you for watching this video as always
I'll see you on the other
[Music]
side
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